Knowing Assistance

Under the ‘second limb’ of Barnes v Addy, a person who knowingly assists the commission of a breach of fiduciary duty is liable to compensate for loss caused by the breach if the following criteria are met:

a) Dishonest and fraudulent breach of trust. In Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378, the Privy Council held that an assister will be liable even if the breach itself is honest, when they had dishonestly assisted an honest fiduciary to commit a breach of obligation. In Farah Constructions, the High Court insisted on strictly applying Barnes v Addyand holding that the breach must be dishonest and fraudulent.

b) Assistance in the breach. It is suggested that the third party will be liable as an assister where either the breach would not have occurred without the assistance or where the breach was committed earlier than would have been the case because of the assistance. Re-Engine Pty Ltd (in liq) v Fergusson & Ors [2007] VSC 57.held that the assistance should “forward or advance the primary breach or misconduct in some way. Mere passive acquiescence in the breach would not, in the ordinary case, suffice to establish liability on the ground of assistance.” Omissions, if not constituting mere acquiescence, can amount to assistance.

Farah Constructions reaffirmed the knowledge test applied in Consul Development Pty Ltd v DPC Estates Pty Ltd, and restated it in terms of the “Baden scale” of knowledge. Knowledge of the breach of duty on any of the first four points of the Baden scale will lead to liability.